Porters Analysis of Tesco
Porter’s Five Forces Analysis
An analysis of the structure of the industry should be undertaken in order to find effective ways of competitive advantage (Porter, 1985). Therefore, in order to analyze the competitive environment of Tesco, Porter’s five forces analysis has been offered by the researcher as follows:
Threat of substitute products and services
The threat of substitutes in the grocery retail market is considerably low for food items and medium to high for non-food items.
In the food retail market, the substitutes of major food retailers are small chains of convenience stores, off licenses and organic shops which are not seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices (Financial Times, 2009). Moreover, Tesco is further getting hold of these shops by opening Express stores in local towns and city centers by creating a hurdle for these substitutes to enter the market.
However, the threat of substitutes for non-food items is fairly high, for example, clothing. It should be marked that so long as the economic recession prevails, customers will be inclined towards discounted prices hence Tesco is a threat to the specialty shops.
Threat of entry of new competitors
The threat of entry of new competitors into the food retail industry is low.
Huge capital investments are needed in order to be competitive and to establish a brand name. Major brands that have already captured the food retail market are Tesco, Asda, Sainsbury’s and Morrisons and they account for 80% of all shopping in the UK (Mintel, 2010). So, new entrants have to produce something at considerably low price and/or high quality to establish their market value.
Gaining planning authorization from local government takes a considerable amount of time and resources to establish new supermarkets and this is therefore a considerable barrier to new entrants.
Intensity of competitive
An analysis of the structure of the industry should be undertaken in order to find effective ways of competitive advantage (Porter, 1985). Therefore, in order to analyze the competitive environment of Tesco, Porter’s five forces analysis has been offered by the researcher as follows:
Threat of substitute products and services
The threat of substitutes in the grocery retail market is considerably low for food items and medium to high for non-food items.
In the food retail market, the substitutes of major food retailers are small chains of convenience stores, off licenses and organic shops which are not seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices (Financial Times, 2009). Moreover, Tesco is further getting hold of these shops by opening Express stores in local towns and city centers by creating a hurdle for these substitutes to enter the market.
However, the threat of substitutes for non-food items is fairly high, for example, clothing. It should be marked that so long as the economic recession prevails, customers will be inclined towards discounted prices hence Tesco is a threat to the specialty shops.
Threat of entry of new competitors
The threat of entry of new competitors into the food retail industry is low.
Huge capital investments are needed in order to be competitive and to establish a brand name. Major brands that have already captured the food retail market are Tesco, Asda, Sainsbury’s and Morrisons and they account for 80% of all shopping in the UK (Mintel, 2010). So, new entrants have to produce something at considerably low price and/or high quality to establish their market value.
Gaining planning authorization from local government takes a considerable amount of time and resources to establish new supermarkets and this is therefore a considerable barrier to new entrants.
Intensity of competitive